Arthrex could offer life sciences patents extra layer of protection

By providing an extra layer of scrutiny of inter partes review decisions, changes following the high-profile Supreme Court decision are likely to be a boon for owners of valuable pharma and biotech patents, argue Scott McBride and Alexander Vogler of McAndrews, Held & Malloy in this co-published piece

The US Supreme Court’s recent Arthrex decision will have a knock-on effect across industry sectors. But companies in the life sciences industry – where PTAB disputes often have profound strategic and commercial importance – have particular reason to keep an eye on how USPTO procedures are adapted in keeping with the ruling. The judgment could prove a boon for patentees in the sector, offering an extra layer of protection to key IP rights.

United States v Arthrex – a case that involves a medical device company – addressed the seemingly straightforward issue of whether the appointment of administrative patent judges was constitutional under the Appointments Clause and, if not, the proper remedy for any such unconstitutional appointments.

In PTAB reviews, executive branch employees (called Administrative Patent Judges or APJs) would issue final written decisions that could cancel or uphold patentability. But under the Patent Act, the agency head (the Patent and Trademark Office Director) had no authority to overturn or vacate such final decisions. It was argued that, because of the unreview-ability of their final decisions, the APJs were acting as principal officers, thus requiring Presidential appointment and Senate confirmation under the US Constitution’s Appointments Clause. Because they were not so appointed, any decisions rendered by them could be declared unconstitutional.

This could have placed in jeopardy all PTAB review decisions ever rendered, or at least those rendered that still are on appeal or open to appeal. The proceedings could have been rendered a complete nullity, or rehearing before a new (constitutionally appointed) panel could have been required.

The court found that the appointments were not unconstitutional. Instead, the plurality explained that “the source of the con­stitutional violation is the restraint on the review authority of the Director, rather than the appointment of APJs by the Secretary.”

Second, regarding remedy, the Supreme Court held that the last sentence of 35 U.S.C. § 6(c), which dictates that “[o]nly the Patent Trial and Appeal Board may grant rehearings,” is “unenforceable as applied to the Director insofar as it prevents the Director from reviewing the decisions of the PTAB on his own.” So after Arthrex, apparently this statute reads “Only [T]he Patent Trial and Appeal Board and the Director alone may grant rehearings.” There is no other part of the Patent Act that authorizes rehearings in reviews before the Patent Trial and Appeal Board (PTAB).

A plurality (4) of the Supreme Court Justices concluded that “[i]n our view, however, the structure of the PTO and the governing constitutional principles chart a clear course: De­cisions by APJs must be subject to review by the Director.” The form of this review and the circumstances in which it will be required have been left up to the USPTO to determine. So what Arthrex means for those involved in PTAB disputes is yet to be decided.

In general, all cases are treated equally at the PTAB. But not all reviews are of equal importance. There is often far more at stake (monetarily and otherwise) in life sciences disputes. As the majority in Arthrex explained, “[b]illions of dollars can turn on a Board decision.” Thus, an additional level of attention by the Director of the U.S. Patent and Trademark Office could be helpful in some reviews of life sciences patents.

Moreover, for transparency and due process reasons, it would be helpful to have any attention from the Director to be visible to the parties before the PTAB. As has been widely suggested, including in the Supreme Court’s opinion in Arthrex, a Director could previously indirectly influence reviews before the PTAB. One such way, it has been surmised, is to select APJs who are pre-disposed to the Director’s view. The Director could also assign her or himself, the Deputy Director, and the Commissioner of Patents to a panel. The availability of a formal rehearing by the Director could remove the need for any such influence.

One could argue that the types of life sciences reviews summarized below would warrant the level of attention and importance for review by an agency head: (1) petitions by hedge fund managers (such as Kyle Bass), in which the petition to short stocks based on reviews of pharmaceutical patents, (2) petitions attacking revolutionary or pioneering diagnostics for patent eligibility (e.g., a post-grant review), (3) petitions for review of Orange Book patents, (4) petitions attacking AI medical device or AI diagnostic patents that present new or unique patent-eligibility issues, or (5) petitions attacking patents covering pandemic-treating or pandemic-vaccinating technologies.

Some would argue that a politically appointed decision-maker such as the Director is not the type of person who should be deciding these issues, despite any practical consideration. After all, this is not like the International Trade Commission, where the 60-day, post-determination Presidential review period permits a politician to disapprove the ITC’s determination (including any exclusion order) for policy reasons. When it comes to maintaining or cancelling patents, such considerations are arguably irrelevant.

The significance of this extra layer of review within the Executive Branch remains to be seen, but the procedures and scope of review that the PTO Director adopts may impact that significance. For example, the USPTO’s interim guidelines (issued 29th June) permit de novo review of issues of both fact and law. They jettison the standard in place for panel rehearing, under which a very small percentage of requests for rehearing have been successful. Under that standard (37 CFR § 41.79(b)(1)), the requesting party must show the panel that matters were “misapprehended or overlooked” by the Board. And arguments “not raised … before the Board and evidence not previously relied upon in the briefs are not permitted in the request for rehearing.” De novo review may have been selected to provide sufficient oversight to render the APJs “inferior” officers under Appointments Clause jurisprudence (including Arthrex).

Thus, the Director has, at least on an interim basis, granted plenary review, which arguably permits it to look at the review anew—as if the review had never occurred and the final written decision did not ext. Its interim rules also create a hierarchy for rehearing. The first request goes to the Director (or to the Director and alternatively to the panel). If a request for Director review only is denied or not requested, the party seeking rehearing may request rehearing by the panel of APJs. If panel rehearing is granted, a party may then seek rehearing of the panel’s rehearing decision (whether or not it originally requested rehearing by the Director). As a practical matter, previously issued final decisions that are not already on appeal and have on remaining time for direct appeal will remain unaffected. That is because the interim rules create a 30-day deadline from the panel’s final decision to request Director rehearing.

The practical implications of Arthrex in the life sciences space potentially could be straightforward for the PTAB and parties and practitioners before the PTAB. Assuming the hurdle of getting a Senate-confirmed Director is overcome, hundreds of reviews need not be reheard (including, possibly, by new panels), judges need not be re-appointed (and confirmed by the Senate), and the status of existing decisions is relatively predictable. Of course, now that we have interim procedural guidelines, we will have to wait a short time to understand exactly how the USPTO will address Arthrex permanently.

If in the wake of the Arthrex decision all requests for rehearings are sent to and decided only by the Director, many parties may feel that their requests are not getting full consideration. It would be very difficult for one person or one office to decide every rehearing, from final decisions of 100+ APJs, while giving real consideration to each petition. Congress may also decide to amend the portion of the America Invents Act related to rehearings. The discretionary nature of the rehearing ordered by the Supreme Court could help ensure that the most significant cases, often involving life sciences, receive their due attention. The interim rules permit the Director to rehear only petitions that have reached a final written decision—they do not permit rehearing of institution decisions and other interlocutory decisions.

Given that a Director may now rule on certain requests for rehearing, parties should carefully craft any such motions for a person previously unfamiliar with any aspect of the case. One thing is likely—life sciences patents may be given an additional level of protection (albeit discretionary) within the Executive Branch and before judicial review of final PTAB decisions. 

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